Calculate tracking error for each manager relative to index

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Reference no: EM13924066

Consider the annual returns produced by two different active equity portfolio managers (A and B) as well as those to the stock index with which they are both compared:

Period	Manager A	Manager B	Index
1	12.8%	13.9%	11.8%
2	-2.1	-4.2	-2.2
3	15.6	13.5	18.9
4	0.8	2.9	-0.5
5	-7.9	-5.9	-3.9
6	23.2	26.3	21.7
7	-10.4	-11.2	-13.2
8	5.6	5.5	5.3
9	2.3	4.2	2.4
10	19.0	18.8	19.7

a. Did either manager outperform the index, based on the average annual return differential that he or she produced relative to the benchmark? Demonstrate.

b. Calculate the tracking error for each manager relative to the index. Which manager did a better job of limiting his or her client's unsystematic risk exposure? Explain.

Reference no: EM13924066

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